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Corporate Crime update - March 2019 | United Kingdom, European Union and International bodies

Four more individuals have been sentenced for conspiracy to make corrupt payments in relation to F.H. Bertling Limited. The sentencing follows a four year Serious Fraud Office (SFO) investigation into individuals involved in bribery schemes to secure contracts for F.H. Bertling in Angola and the North Sea. Thirteen individuals were charged, as was F.H. Bertling itself, with nine convicted of one or more charges and four individuals acquitted. The company has since gone into liquidation.

SFO opens investigation into three property developments

The SFO has announced it has opened an investigation into a suspected fraud concerning three property developments: Angelgate, Manchester; North Point Pall Mall, Liverpool; and New Chinatown, Liverpool.

SFO announces new General Counsel

Sara Lawson QC will join the SFO as its new General Counsel in May. The SFO General Counsel's role is to provide oversight, advice and quality control on SFO cases and preparations for trials.

HM Treasury has published an updated version of its advisory notice on money laundering and terrorist financing controls in higher risk jurisdictions. The advice covers how to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) requirement to implement policies and procedures to prevent activities related to money laundering and terrorist financing, including applying enhanced due diligence for higher risk jurisdictions.

HMRC has published updated guidance on how and when, in its view, a representative of a company or partnership should self-report the organisation's failure to prevent the criminal facilitation of UK tax evasion. The guidance sets out the benefits of self-reporting but confirms that it does not guarantee immunity from prosecution.
On 8 February 2019, in response to a parliamentary question, Mel Stride, Financial Secretary to the Treasury, confirmed that since the offence for failure to prevent tax evasion under Article 45 of the Criminal Finances Act 2017 was enacted in September 2017, HMRC has commenced "less than five" criminal investigations for the offence.

New taskforce to tackle economic crime

HM Treasury and the Home Office have announced that the Chancellor of the Exchequer, Philip Hammond, and Home Secretary, Sajid Javid, will jointly chair a new government task force to tackle economic crime. The new Economic Crime Strategic Board, which will meet twice a year, will work with senior figures from the UK financial sector to scrutinise performance against the economic crime threat set out in the Serious and Organised Crime Strategy.

Manraj Virdee sentenced for illegal operation of unauthorised CIS

The FCA has announced that Manraj Virdee has been sentenced to a two year prison sentence, suspended for two years, and 300 hours of unpaid community service after pleading guilty to four charges relating to fraud, misleading consumers, and illegally operating an unauthorised collective investment scheme (CIS). The FCA has obtained a financial restraint order against Mr Virdee's assets and will pursue confiscation proceedings in order to compensate the scheme's customers.

NCA granted forfeiture orders relating to accounts held by the son of the ex-Prime Minister of Moldova

The National Crime Agency (NCA) has been awarded forfeiture orders totalling £466,321.72 by the City of London Magistrates' Court relating to three accounts belonging to the son of the ex-Prime minister of Moldova. The accounts had been the subject of account freezing orders (AFOs). AFOs, and the related ability to apply for a forfeiture order, are new powers introduced by the Criminal Finance Act 2017.
The judge was satisfied, on the balance of probabilities, that the money in the accounts derived from the father's criminal conduct in Moldova. The ex-Prime Minister is currently serving a nine-year prison sentence after he was convicted in June 2016 for his part in the disappearance of $1 billion (£646 million) from three Moldovan banks.

The bank's records showed that large deposits into the accounts came from overseas companies, mainly based in Turkey and the Cayman Islands. Multiple cash deposits were also identified across the UK branch network, with £98,100 paid within a three-day period. The subject had no registered income in the UK.

a 9.6% increase in SARs received in the period April 2017 to March 2018 compared to 2016-17;

a 20% increase in defence against money laundering (DAML) requests;

£51,907,067 was denied to criminals as a result of DAML requests (refused and granted); and

$500 million was denied to criminals as a result of a DAML refusal relating to funds transferred to fraudsters from overseas.

UK falls out of global top 10 in anti-corruption index

Transparency International has published its Corruption Perceptions Index 2018 which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople. The data suggests that, despite some progress, most countries are failing to make serious inroads against corruption. The UK has fallen to number 11 in the index with Transparency International warning that corruption could pose a growing threat if the UK leaves the EU without a withdrawal agreement. The highest scoring region was Western Europe and the EU with an average score of 66. Sub-Saharan Africa was the lowest scoring region with an average score of 32.

Anonymous safety deposit boxes and amendments to JMLSG guidance

Following amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information of the Payer) Regulations 2017 which came into effect on 10th January 2019, the Joint Money Laundering Steering Group (JMLSG) has announcedminor changes to the Guidance in Part I paragraphs 5.3.17 and 5.3.67 as follows:

regulation 29(6) (restrictions on anonymous accounts and passbooks) adds the restriction of anonymous safe-deposit boxes; and

regulation 29(7A) has been inserted to direct that customer due diligence measures be applied to all anonymous safe-deposit boxes in existence on 10th January 2019, and in any event before they are used.

JMLSG 2019 Workplan

JMLSG has published its 2019 work plan which includes (among other things) matters arising from the expected implementation of the Fifth Money Laundering Directive (MLD5) by January 2020, and new areas of guidance on virtual currency exchanges, digital identities, and payment initiation services. Any changes to UK legislation which are required as a result of the UK's exit from the EU will be reflected in the forthcoming guidance.

Brexit preparedness - new technical guidance on interception and monitoring prohibitions in sanctions

The Export Control Joint Unit (ECJU) and the Department for International Trade (DFIT) have jointly published technical guidance on the interception and monitoring prohibitions in sanctions against Burma, Iran, Syria and Venezuela made under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). The relevant regulations under SAMLA will (subject to any agreement between the EU and the UK) be brought into force when the UK leaves the EU. The guidance provides exporters with further information regarding the meaning of specific terms used in the schedules to these regulations.

New criminal offences for mishandling a pension scheme

The Department for Work and Pensions (DWP) has published the Government's response to its June 2018 consultation on plans to improve the powers of the Pensions Regulator (TPR). Following the consultation, the DWP proposes to introduce two new criminal offences to prevent and penalise the mismanagement of pension schemes:

the first will target individuals who willfully or recklessly mishandle pension schemes, endangering workers’ pensions, by such things as chronic mismanagement of a business, allowing huge unsustainable deficits to build up, taking huge investment risks, or a combination thereof. It will introduce a new custodial sentence of up to seven years’ imprisonment or an unlimited fine; and

the second, which will attract an unlimited fine, will target individuals who fail to comply with a Contribution Notice, which is issued by TPR requiring a specified amount of money to be paid into the pension scheme by that individual. A new civil penalty of up to £1 million will be introduced for this offence.

Independent review of the quality and effectiveness of audits

The UK Government's Department for Business, Energy and Industrial Strategy (BEIS) has announced plans for an independent review into the quality and effectiveness of audits. The review follows the collapse of construction firm Carillion, retailer BHS, and a suspected accounting fraud at Patisserie Valerie. The review will be led by Sir Donald Brydon. It is expected among other matters, to consider the extent to which audits can and should assess whether underlying information provided to them is reliable or fraudulent.
The review has been commissioned in response to perceived widening of the "expectation gap" - the difference between - the difference between what users expect of an audit and what auditors responsibilities entail.

Attorney General's new framework agreement with SFO

The Attorney General's Office (AGO) published its Framework agreement between the Attorney General and Solicitor General (the Law Officers) and the Director of the SFO. The agreement sets out the main points of the relationship between the Law Officers and the SFO.

Home Office approves extradition of Vijay Mallya to India

UK Home Secretary Sajid Javid has approved the extradition of Indian tycoon Vijay Mallya to face charges of fraud and money-laundering in India. The Home Secretary’s order comes after a UK court ruled in December that Mr Mallya had a case to answer on criminal charges linked to the collapse of Kingfisher Airlines’ business in 2012. Mr Mallya is accused of conspiracy to defraud, making false representations, and money laundering offences. Mr Mallya has 14 days to appeal against the decision and has stated on Twitter that he has initiated an appeal.

The Treasury Committee has published an exchange of letters between Committee Chair Nicky Morgan and Caroline Wayman, Chief Ombudsman and Chief Executive of the Financial Ombudsman Service (FOS). A Committee press release highlights the relevance of the content of Ms Wayman's letter to the Committee's current inquiry into economic crime. Ms Wayman reported that the FOS received 8,500 complaints about fraud and scams in 2017/18, and that it has already received over 10,000 new cases this financial year. Ms Wayman also remarked that "on average it can take 38 days for one of these types of cases to be allocated to an investigator, an average of 99 days to be allocated to an ombudsman if the investigator’s view is not accepted, and thereafter 78 days to receive a final decision."

Review of non-disclosure agreements and whistleblowing laws

The UK Government has announced proposed amendments to rules around whistleblowing and non-disclosure agreements (NDAs) following press reports regarding the alleged inappropriate use of NDAs and other concerns highlighted by the #metoo movement. The new proposals include legislating that workplace confidentiality agreements cannot be used to prevent people from reporting crimes, harassment or discrimination to the police.

EU Exit: HM Treasury guidance on financial sanctions

HM Treasury has published general guidance on financial sanctions to be applied when the UK leaves the EU. The guidance covers how the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) will enable sanctions to continue uninterrupted when the UK leaves the EU. Secondary legislation under SAMLA, in the form of statutory instruments, will largely replicate existing EU sanctions, albeit with some differences of detail.

OFSI Financial Sanctions Notices

HM Treasury's Office of Financial Sanctions Implementation (OFSI) has published the following financial sanctions notices:

a Financial Sanctions Notice confirming that Council Regulation (EC) 1210/2003, which imposes financial sanctions against Iraq, has been amended so that an asset freeze no longer applies to eight entities that are listed in the Annex to the notice;

a Financial Sanctions Notice announcing an amendment to financial sanctions against the ISIL (Da’esh) and Al-Qaida Organisations; and

OFSI has announced that it has imposed a monetary penalty of £5,000 on Raphaels Bank for a contravention of regulation 3 of the Egypt (Asset-Freezing) Regulations 2011 in relation to a £200 transfer. The penalty was reduced by 50% in consideration of the bank's disclosure and cooperation.

The FCA has published its Primary Market Bulletin No. 20. In this edition, among other matters, the FCA draws attention to requirements for issuers trading on a regulated market who are active in the extractive or logging of primary forest industries, and whose home state is the UK, to prepare an annual report on payments made to governments for each financial year. The FCA highlighted the following concerns in relation to compliance with this obligation:

the above filing requirements are in addition to (and not instead of) the requirements for the disclosure, dissemination and filing of regulated information in DTR 6;

some issuers are not providing the required level of granularity, e.g. amounts of payments; and

The SFO has announced the closure of its investigations into Rolls-Royce Plc, and GlaxoSmithKline Plc (which focused on commercial practices by the company, its subsidiaries and associated persons). The Rolls Royce investigation led to the company entering into a deferred prosecution agreement in 2017, but since that there has been uncertainty as to whether the SFO would charge any individuals. The investigations have been closed due to insufficient evidence or it not being in the public interest to bring a prosecution in these cases.
Lisa Osofsky, Director of the SFO, highlighted that “in the Rolls-Royce case, the SFO investigation led to the company taking responsibility for corrupt conduct spanning three decades, seven jurisdictions and three businesses, for which it paid a fine of £497.25m."

On 10 April 2017, the Rt. Hon. Sir Brian Leveson PC approved the UK’s fourth Deferred Prosecution Agreement (DPA) with Tesco Stores Limited (TSL). The DPA had been embargoed from publication, pending the trial of three former Tesco executives on related charges of fraud and false accounting. Following each individual being acquitted of all charges and the Court of Appeal dismissing the SFO's appeal, the DPA was published on 23 January 2019. Our full briefing is available here.

The High Court has ordered that documents provided to Tesco plc by the SFO for the purpose of negotiating a deferred prosecution agreement (DPA) must be disclosed by Tesco in the separate civil action relating to the same subject matter, brought by its shareholders under s.90A of the Financial Services and Markets Act 2000 (FSMA): Omers Administration Corporation & Ors v Tesco plc [2019] EWHC 109 (Ch). The court reached this conclusion notwithstanding the fact that these documents were obtained by the SFO from third parties using its powers to compel the production of information/documents under s.2 of the Criminal Justice Act 1987 (CJA), and provided to Tesco during the DPA process on the understanding between the SFO and Tesco that the information they contain would be kept confidential. Our full briefing is available here.

The SFO has announced that David Lufkin, Former Global Head of Sales for Petrofac International Limited, has pleaded guilty to eleven counts of bribery contrary to sections 1(1) and 1(2) of the Bribery Act 2010. These offences relate to the making of corrupt offers to influence the award of contracts to Petrofac worth in excess of USD $730 million in Iraq and in excess of USD $3.5 billion in Saudi Arabia. Mr Lufkin will be sentenced at a later date. The SFO's investigation into Petrofac Limited and its subsidiaries is ongoing.

A litigation funder and London law firm have announced they are preparing to back shareholders in a claim against Petrofac for substantial losses suffered as a result of Petrofac's alleged involvement in bribery, corruption, and money laundering.

EU Exit: draft and final statutory instruments

The following draft and final statutory instruments, which remedy certain deficiencies in UK law and retained EU law arising as a result of the UK's exit from the EU, have been published:

The European Commission sought to adopt a new list of 23 "high-risk third countries" with strategic deficiencies in their AML and counter-terrorist financing (CTF) frameworks; the announcement was accompanied by a factsheet. Firms in the AML regulated sector are required to apply enhanced due diligence on customers established in the "high-risk third countries". The new list added Saudi Arabia, Panama, Nigeria, Samoa, US Virgin Islands, Puerto Rico and Guam.

The Commission adopted the list in the form of a Delegated Regulation which was submitted to the European Parliament and Council for approval.

The list has come under criticism following its adoption:

the US Treasury criticised the European Commission for diverging its list from the list developed by the Financial Action Task Force (FATF) and criticised the inclusion of the four US territories. The Treasury Department stated that it does not expect US financial institutions to take the European Commission’s list into account in their AML/CFT policies and procedures; and

the head of the FATF has said that he considers the EU blacklist as undermining the work of the FATF.

Most recently, the European Council rejected the list, meaning that the Commission will need in due course to propose a revised list.

The European Commission has published a Commission Delegated Regulationsupplementing the Fourth Money Laundering Directive (MLD4) with regard to regulatory technical standards (RTS) for the minimum action and the type of additional measures credit and financial institutions must take to mitigate money laundering and terrorist financing risk in certain third countries (which do not permit the application of equivalent AML/CTF measures). The Commission Delegated Regulation will apply three months after its entry into force. Please see our briefing for further background to this draft regulation.

The Council of the EU has announced that an informal agreement has been reached on a directive which aims to strengthen law enforcement authorities' capacity to fight terrorism and serious crime particularly by strengthening their access to financial and other information including information held across borders. The new rules will require member states to:

define those competent authorities which can directly access bank account information and request information or analysis from the financial intelligence units, and notify the Commission;

ensure that these competent authorities also have the power to access and search bank account information directly and immediately;

ensure that financial intelligence units are required to cooperate with the competent authorities and are able to reply in a timely manner;

ensure that the designated competent authorities reply in a timely manner to requests for law enforcement information by the national financial intelligence unit;

ensure that financial intelligence units from different member states are entitled to exchange information in exceptional and urgent cases related to terrorism or organised crime associated with terrorism; and

ensure the competent authorities and the financial intelligence unit are entitled to reply to duly justified requests related to bank account and financial information made by Europol.

The informal agreement will now be presented to EU ambassadors for confirmation on behalf of the Council.

EBA: updated final report on fraud reporting guidelines under PSD2

The European Banking Authority (EBA) has published its updated final report on fraud reporting guidelines under the Payment Services Directive 2 (PSD2) in order to reflect minor editorial changes.

EUROPOL: EU member states agree 2019 money laundering action plan

EUROPOL has announced the launch of the 2019 operational action plan for the EMPACT priority ‘Criminal Finances, Money Laundering and Asset Recovery’, an EU-financed initiative led jointly by the French Customs and Judicial Police. Financial crime investigators from 25 EU member states, together with specialists from Europol, CEPOL and the European Commission, convened to agree on ways to tackle the threat of money laundering. The resulting action plan outlines 19 actions to be carried out throughout Europe in the coming year including joint actions targeting money laundering syndicates offering money laundering services to other criminal networks; and actions targeting organised crime groups making use of emerging new payment methods to launder criminal proceeds. EU member states, including the UK, have agreed to lead one or more of these operations.

The European Parliament Special Committee on Financial Crimes, Tax Evasion, and Tax Avoidance (TAX3 Committee) has called for the tightening of AML legislation as they believe current legislation is failing to prevent dirty money flowing between member states. The committee has suggested that there should be a centralized model of AML supervision and enforcement in the EU. The TAX3 Committee are currently investigating the alleged funneling of €200 billion ($227 billion) in suspicious transactions through Danske Bank's Estonian branch. The committee has concluded the first tranche of its investigation in Estonia and will now question authorities and Danske Bank staff in Denmark.

International Bodies

FATF consolidated assessment ratings

FATF has published its latest consolidated assessment ratings that assess how effectively countries' AML and CTF measures work in practice, and how well they have implemented the technical requirements of the FATF recommendations.

FATF Plenary 20-22 February 2019

The FATF has published the outcomes from its February 20-22 Plenary. The topics discussed at the Plenary meeting include FATF's plans to mitigate the money laundering and terrorist financing risks associated with virtual asset activities and identifying jurisdictions with strategic AML and CTF deficiencies. FATF has also published the following documents:

The Wolfsberg Group has published new guidance for financial institutions on how to carry out sanctions screening alongside its key themes. The guidance sets out global industry best practice for sanctions screening and aims to provide firms with an industry perspective on effective financial crime risk management.

IPSFF guide to managing fraud for public bodies

The International Public Sector Fraud Forum (IPSFF) has published a guide to managing fraud for public bodies. The guide sets out broad fraud and corruption principles and measures that public bodies should adopt to combat and detect fraud under the headings, prevent; detect and measure; respond; and capability and leadership.

The measures include ensuring that there is an individual accountable for fraud and corruption at board or senior management level and having appropriate governance in place to implement effective fraud management and control. The guide also identifies the need for a fraud and corruption risk assessment; identifies red flags which may indicate higher risk of fraud or corruption; and provides guidance on how fraud investigations should be managed.

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